Wednesday, August 22, 2012

The Wiki is Finished.


I am pleased to announce that the Wiki that holds the Preliminary Specification is now finished. It is located here and includes the eleven modules, the abstract and the executive summary that were published here recently. I have also included a background section that hopefully provides further information on some of the key concepts in the Preliminary Specification. I am particularly pleased with the abstract and executive summary. I think that they capture the scope and substance of the project as they stand to date and the job that we have a head of us.

Now that I have completed my involvement in the Preliminary Specification it is time to promote it to the producer firms that will have an interest in participating. This will be to raise the required funds to complete the Preliminary Specification, which will also involve building the user community. If you know of someone who might be interested in this project be sure to send them the url to the wiki.

Posting will be intermittent, but we’ll update you here as soon as there’s new information. Thanks.

Thursday, August 09, 2012

Final - Preliminary Specification - Executive Summary


The Preliminary Specification is an eleven module ERP (Enterprise Resource Planning) software system designed for the innovative oil and gas producer. It uses as its key organizational focus the Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the industry. By moving the compliance and governance of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee we achieve a speed, innovativeness and accountability that is necessary in the era of insatiable energy demand.

The Preliminary Specification is a development phase that will determine the scope and detailed requirements of the system in its first commercial release. “What” will the system do and “how” will it do the things that it sets out to do. These specifications will be as a result of user community input and be detailed and comprehensive. The budget for this phase of the development is set at 5 - 10% of the total overall budget and projected to be $100 million. Producers are a key aspect of the user community and should consider joining as soon as possible to ensure that the system considers their needs. Waiting provides no cost advantage and there will be disadvantages to those that do not participate actively. Please review our Revenue Model for more information.

Hosting of the People, Ideas & Objects application modules, and the Oracle modules, will be via the cloud computing architecture. Please review our Hardware Policies & Procedures for further information on how these affect the producer firms.

Security & Access Control

What we have with using the Joint Operating Committee (JOC) as the key organizational construct of the innovative oil and gas producer. Is the interactions of many producers and suppliers who are involved in the day to day commercial and strategic concerns of a JOC. What we need to concern ourselves within the Security & Access Control module is that the right people have the right access to the right information with the right authority at the right time and at the right place.

Throughout the Preliminary Specification we discuss one of the premier issues of the oil and gas industry. That being the demand for earth science and engineering effort is increasing with each barrel produced. This is best represented in the steep escalation of the costs involved in the exploration and production of oil and gas. At the same time the critical earth science and engineering resources are somewhat fixed and are difficult to expand in the short to medium term. Add to that, an anticipated retirement of this brain trust in the next twenty years, and the problem becomes of critical concern.

There are few short term solutions to the short fall in geologists and engineers over the next twenty years. It takes the better part of that time to train them to operate in the industry. What we do know are several “things” that are being applied in the People, Ideas & Objects Preliminary Specification. Key to a number of concepts application are what we call the Military Command & Control Metaphor. Which is a method developed in the Security & Access Control module of imposing command and control over any and all Joint Operating Committees, working groups, producer firms or organizations the producer may need to add structure to.

The concept of specialization and division of labor is well known as a principle of economics that brings about greater amounts of economic productivity from the same volume of resources. Given that the volume of earth science and engineering resources are known for the foreseeable future, specialization and the division of labor will provide us with a tangible means in which to deal with the productivity of the oil and gas industry. In today’s marketplace to approach a heightened level of specialization and division of labor, particularly from a scope and scale point of view, without the use of software to define and support it would be downright foolish.

The pooling concept is the solution to the current desire that each producer firm acquires the earth science and engineering capabilities necessary to deal with all the needs of their “operated” properties. This creates unneeded “just-in-time” capabilities for the scarce scientific resources. When each producer within the industry pursues this same strategy substantial redundancies are built into the industries capabilities. Redundancies that are left unused and unusable. What is proposed through the People, Ideas & Objects software application modules is that the producers operational strategy avoids the “operator” concept and begins pooling the technical resources through the partnership represented in the Joint Operating Committee. That way the redundancies that would have been present in the industry can be made available to the producers and used by the producers through an advanced specialization and division of labor.

What these concepts require therefore is what the Security & Access Control module is designed to provide. The system must provide access to the right person at the right time and the right place with the right authority to the right information. With the Military Command & Control Metaphor there will also be a manner in which the technical, and all the resources, that have been pooled from the producers, interact with an appropriate governance and chain of command.

Oracle’s products provide a strong layer of mission critical capabilities in the Security & Access Control module. Although this comes with additional costs, I am certain that no one will argue with the quality and secure knowledge that these products bring.

Resource Marketplace

To deal effectively with the resource marketplace the producer will need tools to effectively engage with the suppliers for the resources they need. The Resource Marketplace Module provides a window on the “Resource Marketplace” for Joint Operating Committees (JOC) and producers. Anything of value that is contracted between “actors” in the oil and gas, service, software and user community generated businesses will be found, contracted, managed and developed through this module. It's simply a virtual representation of these marketplaces. Therefore the negotiation, determination of available resources, determination of transaction costs, contract execution and effective software tools to monitor and verify compliance to the contract are all part of the Resource Marketplace module and its interfaces to other modules of the Preliminary Specification.

Similar interfaces will be provided to the service industries. After all transactions have two parties, the efficiencies of the producers would inherently include the efficiencies to the service provider. Since we have an accounting system, then certainly offering these services to the suppliers would only make sense. It is not just producers in the Resource Marketplace. Key to the efficiencies in the Resource Marketplace are the mitigation of transaction cost friction. Friction on both sides of the transaction, because transaction costs in the Resource Marketplace are costs that will ultimately be borne by the producer or Joint Operating Committee.

Contained within the marketplace will be all of the producers and suppliers who will be able to define, create and conduct business in this virtual marketplace. The scope and size of the Resource Marketplace should accommodate the needs of Exxon Mobil and their $250 billion annual operating costs down to the single entrepreneur starting out in the business. To preclude any group, profession, organization, or person from the Resource Marketplace would limit the value available to the industry.

Also, to call this just a Human Resource Marketplace would be incorrect because it would limit the participants in the market. Whatever service, product or solution is provided to the energy industry, from either individuals, those employed by producers or JOC’s, or companies providing services to the producers. This should include Schlumberger and anyone directly or indirectly employed in the energy industry.

It is the use of the Joint Operating Committee and the “Marketplace Interface” by the Resource Marketplace that provides the value to the innovative oil and gas producer. Enabling the service industry to grow thick markets for their products and services. Producers have a role in defining and supporting a dynamic, competitive and healthy service industry. However, before that happens, the need for the software that is defined here in the Resource Marketplace has to be built for the producer, the Joint Operating Committee and the service sector to support these markets.

The division of labor and specialization play a large role in the Resource Marketplace as well. By outsourcing many of the administrative functions from the producer firm to specialized service providers. The producer firm is able to focus on those core competitive advantages of their land and asset base, and their earth science and engineering capabilities. Having the land, accounting, production and other administrative functions sourced from the Resource Marketplace by specialized service providers.

With this change in the administrative function of the producer firms we are able to transition from the “high throughput production” model to the “decentralized production” model where production and overhead costs more accurately match revenues. As a result we are able to initiate pricing related production decisions that better manage the producers oil and gas reserves.

The Resource Marketplace module is an active participant, as is the Petroleum Lease Marketplace and Financial Marketplace modules, in the “Marketplace Interface”.

Petroleum Lease Marketplace

The Petroleum Lease Marketplace (PLM) is I think the most interesting marketplace module as its objective is to replicate virtually what the physical oil and gas marketplace is. That begins of course with Petroleum Leases.

When we are replicating the physical oil and gas marketplace, the Petroleum Lease is the source document that is the common denominator of all activity and ownership within the industry. Any physical oil and gas assets will be attached to some lease, agreement, rights or concession granting the holders the rights and privileges of ownership, lease or rental. These are the things that are contained within a marketplace. They are what are purchased and sold, bargained and traded for. They are the things that people are recruited to provide services for. Generally a marketplace is a dynamic and evolving commercially oriented hub of activity. That is what we are replicating in the PLM.

When we look at the types of work that is carried out in the PLM we see a large group of administrators working within different areas within a producer firm. Whether it be the Land or Legal department, Production or Exploration Operations staff or Accounting people; all of these groups have an interest in the information, people, assets, documents, processes and functionality contained within the PLM. The primary concern of the people in these groups is the information and data contained within the module. Its accuracy, access, and use by those within their firm, but also within the Joint Operating Committees that their firm has an interest in. Some of this data will be similar to the data that is held by their firms partners, and much of the data has been generated in a cooperative and collaborative manner by those partnerships.

One of the greatest opportunities that we have in developing this system is to address the division of labor and specialization. To take these people’s work and to reorganize it across the industry, so that it was focused on the Joint Operating Committee and very specialized in terms of the tasks that they conduct. To apply those skills across the entire industry, or a geographical region, or some other classification. Which is something that could provide significant increases in oil and gas industry productivity and overall cost savings. That is to say that an individual would work for a process that is billed to 1,000 Joint Operating Committees that might represent 200 Companies.

The types of documents that are generated within the Petroleum Lease Marketplace are somewhat self-evident. (Recall we are including Land, Legal, Production Admin, Exploration Admin, Accounting and Others in the classifications.) Most of them are created in collaboration with the participants of the Joint Operating Committee and include: Authority for Expenditures (AFE"s), Capital Budgeting (Firm and JOC), Construction Ownership and Operating Agreements, Mail Ballots, Daily Drilling Reports, Lease Bonus, Lease Rental, Lease Taxes, Areas of Mutual Interest are some of the forms, processes and attributes of the Petroleum Lease Marketplace module. A more detailed specification will be the result of the communities contribution and commitments.

The innovative oil and gas producer relies on their competitive advantages of their land and asset base, and their earth science and engineering capabilities. The Petroleum Lease Marketplace is the module that provides the producer and Joint Operating Committee with the tools to build their land and asset base. But there’s more, using the “Marketplace Interface” and the service providers that support the innovative producer. The Petroleum Lease Marketplace provides the producer with the competitive advantages to compete in the 21st century.

Financial Marketplace

With many of the world's financial markets continuing to be illiquid and nervous about certain situations. The capital and debt markets have been very negative towards the oil and gas industry with many of the independents being shut out of those markets. The rise of the Asian Joint Venture is a direct result of the inability to raise any money in the “normal” capital markets. I would expect to see further fall out as the Euro situation seems to be far from resolved, the U.S. is deeply indebted and demanding a lot of capital with only the quasi-government groups in Asia holding any significant amount of capital to invest.

The primary point that the Financial Marketplace module is making is that there are competing interests and motivations in the industry in attempting to get things done. With different strategies being deployed by different partners within a Joint Operating Committee, is it any wonder that the financing of a project can ever fall into place. What the Financial Marketplace module proposes is that instead of the property being funded by several different company bankers, each taking a working interest share claim against the firm. The Financial Marketplace module would see one bank fund the property in its entirety on behalf of the partners represented in the property. Aligning of the bank and investment financing to the innovative oil and gas producers and Joint Operating Committees legal, financial, operational decision making, cultural, communication, strategic, innovation, compliance and governance frameworks.

Today that may or may not be an objective or opportunity worth pursuing. However, I think that the freedom of having the attributes of the Financial Marketplace module still reside within the oil and gas market, and possibly even more as a result of the financial meltdown of 2008. Why? The demand for capital will continue to be strong, and the supply will continue to be tight. What we seek to prove in this module, is that through its use we can provide the innovative oil and gas producer and the Joint Operating Committee with the ability to ensure that their capital structures are more efficient than what can be attained in any other system. My two criticisms of the management are that the velocity at which the management operates at is too slow, and the innovativeness is non-existent. In the financial marketplace the pace of activity will need to accelerate in order to address both of these issues. I think we have addressed these with the changes we have documented in the Financial Marketplace module of the Preliminary Specification.

The future requires that we are able to provide for the markets demands for energy. The financial crisis is providing relief in terms of overall global economic growth. Eventually the increase in demand for energy will resume and that is not something that we can currently contemplate. What we have proven here in the Financial Marketplace module is that the innovative oil and gas producer will have more efficient capital structures. Those structures lead to the overall performance of the producer and the Joint Operating Committees they participate in. We need to get our head around this energy demand situation and start to deal with a solution. Muddling through just seems to be too much of a risk.

A note about the “Marketplace Interface” that is a critical component of the Resource, Petroleum Lease and Financial Marketplace modules. The “Marketplace Interface” is a virtual representation that the user has of each of the marketplace modules. It uses avatars where firms and producers establish a virtual representation of their firms offerings. This provides a means in which people have to conduct their business virtually as well as through the traditional means. The avatars are supported through the People, Ideas & Objects ERP system that provides them with the ability to conduct any and all operations that they are able to conduct in the Preliminary Specification modules. The following video is a demonstration of the technology by the project owners Project Wonderland.

(Please review the video below.)


Partnership Accounting

The Partnership Accounting module is a pure “accounting” module from the traditional sense, however, I think there are many attributes and concepts in this module that make it unique and of interest to everyone in the industry. The standard list of output from an accounting system is provided and this is standard fare for any software provider in oil and gas. And the user community will fill this list with much more. As we will see in subsequent discussions the difference in the People, Ideas & Objects software application is substantial in that the Joint Operating Committee is treated as the partnership that it is. It also recognizes that the costs of the property for each of the producers within a Joint Operating Committee are as unique as the strategies that are employed.

When we talk about the scope of operations that would be managed under the Partnership Accounting module I would say that it includes just everything. Simply the cut-off would be the inlet to any refinery. Therefore the total scope of any upstream oil and gas operation. Let me be more specific about that from the point of view of geography and type of operation managed by the People, Ideas & Objects application.

If we look at the North American oil and gas infrastructure we see a variety of oil and gas installations designed to serve both producers and consumers of oil and gas. Wells, gathering systems, gas plants, pipelines, storage facilities etc. At each point along these systems there may be additional deliveries of product, or sales of product or products inventoried. What seems to be an obvious and simple business becomes incredibly complex when it's realized that each asset may be owned by a Joint Operating Committee itself and hold product on behalf of owners of other Joint Operating Committees. This summary glosses over the incredible complexity of this business when the volume of transactions that occur in these businesses make it an important part of the oil and gas operation.

Critical to controlling the business is the “Material Balance Report” that is part of the Preliminary Specification. It is the central document that so much of the subsequent process activity is based upon. If someone is to be charged for storage of butane for example, or if someone is to be charged a marketing fee for delivery of product to a customer. Or simply if a sale of a raw gas stream is deemed to have occurred at the wellhead. The Material Balance Report captures these transactions and initiates the flow of documents that need to be generated. It is these documents that also need to be captured and generated in the People, Ideas & Objects Preliminary Specification. To state this as simply as possible is that the scope of the Partnership Accounting module captures all of these activities for all of these facilities as its purpose. Each Material Balance Report must balance. And each reports inputs and outputs balance to other Material Balance Reports. The key to the Material Balance Report is that it provides a means to ensure that the volumes that are reported are factual. Which is the necessary requirement for much of the subsequent process automation.

As we explore the Partnership Accounting module further we see the reasons why we are taking such a broad scope of operations into considerations. It would be an understatement to state that the Material Balance Report has been poorly served by IT. To approach it from a global perspective that includes production operations, accounting and the other areas that depend on this information would be “ideal,” however, the complexity of the business has always been in the way. The engineering of software has never been available to approach the type of problem that this area presents. I think it exists now. And I think that the Partnership Accounting and Accounting Voucher modules of People, Ideas & Objects provides the vision of how this engineering solution solves this problem.

We also introduce the “Work Order” in the Partnership Accounting module. The “Work Order” enables producer firms to participate in informal and ad-hoc working groups to conduct studies and research. These informal groups are able to be established and formed without the traditional accounting nightmare that they have normally created, that are the impediment to their formation. An innovative oil and gas industry needs to have these studies and research working groups form and develop in order to expand the overall science of the industry. The “Work Order” is also an internal cost control mechanism that producers and Joint Operating Committees can rely on to manage their projects.

Accounting Voucher

We now shift our attention to the Accounting Voucher module. The interactions between the Accounting Voucher and the Partnership Accounting modules of the Preliminary Specification are naturally quite significant. They both being accounting modules, it is natural that they have high levels of integration. The Accounting Voucher is unique in that it brings to the producer the ability to design transactions and the Material Balance Report. These are not innovations that the producer will use to become more innovative but are provided to ensure that the innovative producers processes are actively defined and supported through out the People, Ideas & Objects application modules.  When the business is a science, as it is in oil and gas, it would be in the producers interest to remain open and flexible in both its scientific and business approach. The Accounting Voucher and Partnership Accounting modules provide that organizational flexibility.

The manner in which these two modules operate is the Accounting Voucher captures the transactions. Partnership Accounting reports on the transactions. Accounting Vouchers remain open for one accounting period and are subject to the same closing process that is familiar and traditional in the accounting world.

We noted in the Partnership Accounting module how the Work Order enabled the producer with the ability to form and participate in working groups. Providing a flexibility in participating and accounting for these working groups. This flexibility is what is being sought after in the rest of the producer firm and Joint Operating Committee from these accounting modules. Elimination of the bureaucratic inertia that impedes these activities today makes these modules critical to a producers innovation as much as the Research & Capabilities or Knowledge & Learning modules do.

The People, Ideas & Objects Accounting Voucher Module will provide the means for the application to “manage the disparate inter-dependencies of modularity theory and Transaction Cost Economics.” That is a summary application of Professor Baldwin's comments and theories. And therefore this Accounting Voucher is one of the key cross roads to all other modules in the People, Ideas & Objects application. What this means is it’s necessary for people to cease in processing transactions, by way of automation, and move toward the definition and design of transactions to optimize the business of the producer and Joint Operating Committees performance. Designing transactions is best described in the Preliminary Specification as coordinating the marketplace.

As a result of the pooling concept that is a basic assumption of the People, Ideas & Objects Preliminary Specification. Some of the Accounting Vouchers will be open to charges from multiple producers represented in the Joint Operating Committees that your producer firm is a participant in. The revenue, capital and operations of each of the Joint Operating Committees accounts are open to the direct debit and credit charges of all of the participants in the JOC.

The pooling concept has been developed as a replacement to the “operator” designation that currently exists. The ability for each producer to have the just-in-time capabilities available for all the properties they manage requires, on an industry wide basis, to have unused and unusable earth science and engineering capabilities. The ability to pool these critical resources from participating producers into the Joint Operating Committee releases these hoarded unused and unusable capabilities. The pooling concept also implies that some producers will provide other resources to the property in disproportionate amounts to their working interests. All producers need to contribute the skills, knowledge, experience and ideas that they have in an innovative oil and gas industry. Therefore each of these producers need to have the ability to charge their capabilities to the joint account. All charges are subject to the AFE or Work Orders budget requirements and cost control remains the domain of the Joint Operating Committees.

Professor Dosi (1988) states that profit motivated agents must involve both “the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asked “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovate inputs. It is People, Ideas & Objects assertion that the “different incentive structures” and “different opportunities” are facilitated or constrained by the administrative ease in which the producer operates.

The same can be stated for the Material Balance Report. If the producer is confident that the deal that was conceived is accurately captured in the Accounting Voucher. And the operation is therefore also reporting a substantial profit. Then they know that their innovations are working, their systems are working and the alignment of the legal, financial, operational decision making, cultural, communication, innovation, strategic, compliance and governance frameworks is achieved.

Research & Capabilities

The Research & Capabilities module enables the producer firm to structure a division of labor between those people that will develop the research and innovations within the producer firm (Research & Capabilities), and those that will implement the innovations within the Joint Operating Committees (Knowledge & Learning). This is one of the major processes of innovation that is carried out in the module. Another major process is that it provides the innovative oil and gas producer with the ability to move the knowledge and capabilities to where the decision rights are held. This module is at the core of the innovative oil and gas producer. Identifying and supporting the key elements of “what” and “how” innovation requires. The Research & Capabilities module is the focus of the producers competitive advantages of their earth science and engineering capabilities.

There are a variety of interfaces in the Research & Capabilities module that enable and encourage the innovation, and develop the capabilities of the producer firm. These capabilities are ultimately captured in the “Dynamic Capabilities Interface” which is the key to both the Research & Capabilities and Knowledge & Learning modules. What the “Dynamic Capabilities Interface” does is capture, document and enable the deployment of the capabilities of the producer firm. These are the knowledge, skills, experience and ideas of the firm. The deployment of these capabilities is by way of their pertinent geological zone, or geographical area, and as a result these capabilities will be populated into the various Joint Operating Committees that meet that criteria in the Knowledge & Learning module.

The objective that we are fulfilling in the Research & Capabilities and Knowledge & Learning module is we are moving the knowledge to where the decision rights are held. The Joint Operating Committee is the operational decision making framework of the industry. With the current method of designating one of the producers in the Joint Operating Committee as the operator there is an attempt to move the decision rights to where the knowledge resides. In the Preliminary Specification we have eliminated the concept of the operator and replaced it with the pooling concept and therefore are able to align the frameworks of the Joint Operating Committee with the compliance and governance of the firm. This requires that we move the knowledge to where the decision rights are held. By doing so we eliminate one point of conflict between the partnership represented in the Joint Operating Committee and the producer who was formerly designated operator.

Knowledge & Learning

We now move onto the Joint Operating Committee focused Knowledge & Learning module of the Preliminary Specification. This module shares many similarities to the Research & Capabilities module, and in fact is populated with the capabilities from that “Dynamic Capabilities Interface” as its base of information. Recall that the objective that we are working to achieve is to move the knowledge to where the decision rights are held.

As I noted the Research & Capabilities module should be organized based on geologic zones. This is so that the information that is pertinent to each zone can be separated into its own “packaging” within the Knowledge & Learning module. Additional ways in which data may be sorted in the Research & Capabilities module might include geographical location. Where all the vendors who operate within a certain geographical location are referenced only in those regions in the Knowledge & Learning module.

With each Joint Operating Committee being concerned with one or a handful of geologic zones. The focus of the Joint Operating Committee can be limited to just those specific areas and or capabilities. What is particularly different about the Knowledge & Learning module, however, is that the information that is contained within the module is aggregated from multiple producers. Any of the producer participants who have information contained within their Research & Capabilities module will have that data and information for those geologic zones of that specific Joint Operating Committee populate the Knowledge & Learning module.

With the potential to have multiple companies contributions of research and capabilities about that zone. It is important to have the information organized within the Knowledge & Learning modules in a manner that when multiple producers data is merged, use of the data is probable. Each capability contains the knowledge, skills, experience and ideas of the people who are part of that producer firms and the service industry representatives. As we have learned “knowledge begets capability, and capability begets action." Quotes are from Professor Richard Langlois book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy.”

Indeed, the job of the entrepreneur is precisely to introduce new knowledge. The “Circular Flow of Economic Life” is a state in which knowledge is not changing. Economic growth occurs at the hands of entrepreneurs, who bring into the system knowledge that is qualitatively new – knowledge not contained in the existing economic configuration. p. 27

Here we begin to see the role that people take in the makeup of the oil and gas industry. And to sum it up is to state that it is everything. One also needs to consider the role of computers in these “actions” and that it amounts to not very much. People, Ideas & Objects divides the jobs between what people do well, the thinking, generation of ideas, leadership, collaborating, deciding and learning and leaves the memory and processing to the computers.

There has to be a mechanism by which new knowledge enters the system. And that mechanism cannot be rational calculation, for as David Hume (1978, p. 164) long ago observed, “no kind of reasoning can give rise to a new idea.” p. 27

There is much to be done in the industry and a lot of it involves blazing new trails. The hard work is what the people will need to be involved in doing. The challenges and opportunities are of historical significance and will require the dedication of a lot of people.

What has been done already has the sharp-edged reality of all things which we have seen and experienced; the new is only the figment of our imagination. Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it. p. 27

Analytics & Statistics and Performance Evaluation

The Performance Evaluation and Analytics & Statistics modules have similar interfaces, the Performance Evaluation is focused on the Joint Operating Committee and the Analytics & Statistics module is focused on the producer firm. Essentially these are user based tools that enable analytical and statistical calculations run against the data and information that are contained within the People, Ideas & Objects ERP systems and other unstructured data. Providing users with the ability to analyze data in new and innovative ways in seeking value for their firm or JOC.

The types of data and information that are prepared and presented in these modules is dependent on the individual users and will in most instances be unique, based on their needs and interests, their scope of authority and the type of work they do. When it comes to who will come up with the next great innovation we should expect that it will come from anywhere. Part of the process of innovation is discovery of the problem and we all see the situation from different perspectives. Therefore the point of view and the innovation will depend to a large extent on those different perspectives. Someone working in the trenches may find innovations that affect their work materially, which may not interest others and vice-versa. This process of discovery should be assisted by the types of tools that include the Performance Evaluation and Analytics & Statistics modules. Professor Giovanni Dosi notes.

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.

Irrespective of the source of the innovation the fact that it materially affects someone's work should indicate that it should be followed through. These opportunities are hard to discover and we need to be able to evaluate them and assess them based on their impact and their ability to build value. What sometimes appears to be a good idea can also sometimes become an area where the firm could be exposed to unnecessary risk or loss. Having the historical data available is necessary, however, in the 21st century it is also necessary to have these advanced analytical tools available to analyze that data.

In the Preliminary Research Report, People Ideas & Objects determined two important findings. One was that the process of innovation can be reduced to a quantifiable and replicable process. Analytical tools are part of that process. And two, that the Joint Operating Committee is the key organizational framework for innovation in the oil and gas industry. Therefore having analytical tools in the Joint Operating Committee and producer firm are critical.

Work in the 21st Century will be different. The tools that people will use will need to be different as well. The Performance Evaluation and Analytics & Statistics modules are the beginning of these new era tools for the way in which people need to work. We frequently speak of specialization and the division of labor in the Preliminary Specification. There is also a specialization and division of labor between what the people and computers will be doing and that is reflected here in these two modules. Computers will be responsible for the storage and processing, and people will be responsible for the thinking, the ideas, the decisions, the creating, the collaborating, the innovation and the many other things we do well. Much of these things being generated based on the facts that are determined through the Performance Evaluation and Analytics & Statistics modules.

Compliance & Governance

Ah Compliance & Governance, the module everyone loves to hate. It is my hypothesis that it is here, at compliance and governance, that everything went wrong. What I mean by that is in the 1960’s when the first computers were being introduced into oil and gas companies. The question was asked what will we do with them. And of course the answer was accounting. Then as they became ever more powerful and more capable they began to add more tasks to their duties and added the natural follow on concerns of tax, royalty and compliance. Soon the culture became focused on those “compliance” requirements of the “firm” and the Joint Operating Committee became something that was used over there. Soon after this engineers and geologists began speaking a different language to the “business” types. Divisions grew and the business of the business was focused on the corporation and its need to file the appropriate paperwork to the appropriate agency in the appropriate time frame on the appropriate colored form.

Anyway the real business of the business, the Joint Operating Committee somehow survived and if we align its legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks to the compliance and governance frameworks of the hierarchy everyone can start speaking the same language as the engineers and geologists and start to get some real business done. And as People, Ideas & Objects research has shown this would provide the oil and gas producer with greater speed, innovation and accountability.

Compliance & Governance is the eleventh module in the eleven module Preliminary Specification. It’s also no accident that I added Compliance & Governance last, as the question that should be asked is. How are we going to ensure compliance to all the regulations for all the module specifications that we have discussed so far? And I would assert that is why these are user based developments. But seriously, one thing governments seem to be fond of today is regulations on oil and gas companies. With Information Technology enabling various governments to issue technical business rules, technical specifications, XBRL syntax’s and other technological frameworks for these regulations. The ability to write these “frameworks” only seems to have encouraged them to write even more regulations. The larger point is that these frameworks do provide software developers with distinct advantages in enabling the regulations within the software.

As we had indicated earlier regarding the user communities determination of the scope of the People, Ideas & Objects application. Part of that determination of scope will include which regulations it will need to be in compliance too. With so many jurisdictions requiring compliance, each transaction may need to be assured to be in compliance with multiple jurisdictions. Add to that the transaction may be generated through a Joint Operating Committee owned by a variety of producers. And those producers may be composed from an international background and the Compliance & Governance module takes on an enhanced importance.

From the point of view of a producer maintaining the database and applications for all of the compliance frameworks that you have to be concerned with is a difficult task. The number of people you need to have to keep your applications up to date is significant. However, People, Ideas & Objects, as one software developer acting on behalf of the industry as a whole, the job becomes much more specialized and therefore manageable. Then again if we were building these applications with the purpose of serving an industry we will use the division of labor and specialization to manage these tasks in a way that would significantly lower the costs of compliance, and increase the quality of the producers compliance.

I foresee just the royalty compliance requirements of these applications potentially including many dozens of different jurisdictions. To approach this from a software engineering point of view as a sole producer is not cost effective in the least. To consider these costs are replicated across each producer firm, then we begin to see the costs of compliance escalating to the levels that they are today. There is another way, and that is what is being proposed here in People, Ideas & Objects, along with the many other innovative ways we are proposing to deal with the issues of the oil and gas industry.

Here we have the beginnings of compliance and governance for the innovative oil and gas producer and Joint Operating Committee. What we need to do is to deal with the compliance of an innovative oil and gas producer with the tools of the 21st century. Those include automation, specialization and the division of labor. And in terms of governance, we can begin to provide the producer firm with the appropriate operational governance that is consistent with the demands of innovation.

Oracle Corporation

The Preliminary Specification details the modules, applications, processes and functions of the Oracle Database, Java, Oracle Fusion Middleware and Oracle Fusion Applications that have been specified and will be used.

Wednesday, August 08, 2012

Final - Preliminary Specification - Abstract


People, Ideas & Objects Preliminary Specification provides a vision of the future oil and gas producer. One that is based on the industry standard Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation, and strategic framework of the industry. When we take the compliance and governance frameworks of the hierarchy and align them with the frameworks of the Joint Operating Committee we attain a speed, innovativeness and accountability that is desired in our oil and gas organizations. The Preliminary Specification is an eleven module ERP system software definition that defines and supports the use of the Joint Operating Committee and marketplaces as the key organizational constructs of the innovative oil and gas producer. This vision is comprehensive and is detailed here in the 175,000 words contained within the modules of the Preliminary Specification.

The next twenty years in the oil and gas industry will be the most dramatic we have ever seen. The demand for energy will ensure that prices remain high. And with so many people joining the middle class we need to consider how the industry approaches this insatiable energy era. Will the current bureaucracy be the solution? The financial recession has us locked in a perception that is backward looking and we can’t see the opportunities that will soon be upon us. Does that future involve an Information Technology perspective that is just a cost, or should it be a vision such as the Preliminary Specification stands today?

After all, as you will see, we are not talking about minor changes to the floor plan for accounting. We are exercising wholesale changes to the oil and gas industry by adopting the Preliminary Specification, and fully utilizing the Joint Operating Committee. Change that is as significant as that which is represented by the change in energy prices and the global demand structure we face. Based on the research of Professor Giovanni Dosi and applied to the oil and gas industry, he asserts that the makeup of industries and companies is attributable not only to the endogenous force of competition. Innovation and imitation also make up the fundamental structure of an industry. “Market structure and technological performance are endogenously generated by three underlying sets of determinants.”

Each of the following three components is evident in the marketplace of an oil and gas producer today, as reflected in:
  • The structure of demand. 

Satisfying the insatiable demand of the global energy marketplace is critical to the advancement of all societies. American and western as well as Chinese and developing societies face real challenges in sourcing adequate long term sources of energy. The long term demands on the energy producer have never been so great.

  • The nature and strength of opportunities for technological advancement.

The nature and opportunities for technological advancement lead one to believe mankind has never faced the level of opportunity and acceleration that is possible today. The industrial mechanization of the past 100 years combined with the prospective mechanization of intellectual pursuits combine to markedly appreciate the value of human life. The availability of energy will be a critical element of this advancement.

  • The ability of firms to appropriate the returns from private investment in research and development.

The oil and gas industry is moving closer to its earth science and engineering principles. Innovation, research and development in both the producer firm and the market are and will become more commercial in nature. It is on the basis of success or failure of these factors that will determine the success or failure of the producer firm within the industry.

The role of software in society is becoming more pronounced. Today we are still in the beginning stages of what can be done. For an industry such as oil and gas to continue on without the software development capabilities that People, Ideas & Objects is proposing, and the organizational structure focused on the Joint Operating Committee, the prospects look dim. It is People, Ideas & Objects claim that we provide the innovative oil and gas producer with the most profitable means of oil and gas production. And we do. First by providing our software through the most cost effective manner. That is charging our subscriber base for the costs of our software developments once. A fundamentally different value proposition. And secondly, that in order to attain a higher level of economic output requires that the oil and gas industry employ higher levels of specialization and division of labor. In order to organize that specialization and division of labor requires the use of the software specified in the Preliminary Specification. There is no other means in which to organize a higher level of specialization and division of labor. The bureaucracy is tapped out. Therefore our claim is valid. The only manner in which to move from the high levels of organizational methodology we currently enjoy, is to design and support a more sophisticated specialization and division of labor. And that is detailed in the Preliminary Specification. We need to take control of the production of the software, to take control of the means of production. That is what People, Ideas & Objects is about.

When it comes to undertaking a large project such as People, Ideas & Objects Preliminary Specification. And we have costed the project in the area of $1 to 2 billion in its first commercial release. Is the need to maintain a sense of urgency for the people involved through to the end of the project. As we know, most of the people will remain motivated as long as the money keeps flowing. So how do we ensure that the money keeps flowing? It is through the fact that the we provide the most profitable means of oil and gas production that we can motivate the producers to maintain their sense of urgency in keeping this project funded and moving forward to its conclusion. Their alternative is the bureaucracy and we see how well they’re doing. In the future it may not be enough to own the oil and gas asset. It will also be required to access the software that makes the oil and gas asset profitable, that is the importance of software in tomorrow’s society.

From the eleven modules there is an overall vision of how the innovative oil and gas producer, and the Joint Operating Committee would function in the insatiable energy demand era. I had two comments made to me when I wrote the Preliminary Research Report. The comments were that “this solves every administrative issue in oil and gas for the past fifty years” and “it's an entire new discipline.” Both were related to the significance of using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. What I think that we can say as a result of completing the Preliminary Specification is that both of these comments underestimate the significance of using the Joint Operating Committee.

What we have discovered is that it certainly resolves the administrative issues when the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks are aligned with the compliance and governance frameworks. However, when it comes to the operational concerns of the oil and gas industry, it also provides the frameworks and means to solve those problems as well. Whether it is the ability to agree amongst the partnership and reduce the production during price declines, or moving the industry to a decentralized production model, where the costs more accurately match the revenues. Or where the innovation is generated through the two major processes in the Preliminary Specification, which do not directly conflict with tight operational control. Or how the division of labor and specialization are enabled, defined and supported through the software to provide for the industry to expand its output from the limited resource base of earth scientists and engineers. These are just some of the features of the Preliminary Specification that impact the operations and enable the producers to enhance their organizations. And although they have been used to highlight today's issues they will also provide solutions for tomorrow's problems.

Changing the innovative behavior of one producer carries a scope of change that is as broad and as diverse as is contemplated in the business world. Change at this scale in many instances can not be managed within the organization but needs to be managed through the forces of creative destruction in the greater economy. A time of dynamic change driven by the organizational changes focused around the innovative Joint Operating Committee. How can a firm that has been developed in an era of cost control transform themselves into an innovative, dynamic, earth science and engineering capability focused producer? In many cases the will to do so might exist, however, with the speed and unforgiving nature of the business cycle, not much time will be provided to those that attempt the transformation. We see in this world the capital markets reflecting many interesting phenomenon since 2008. To suggest any trend or definitive result from these would be premature. Its just a different world in terms of being an oil and gas CEO then it was before 2008.

The Preliminary Specification includes in its definition Oracle Corporation’s technologies. If you read or review any of their material it has a decidedly technological focus. If you mention the Joint Operating Committee within their organization you can hear it echo for a week and a half. They really have no fundamental understanding of oil and gas, and only a basic understanding of business. They have become very specialized in what they do and the products they sell. Such is the nature of the division of labor and specialization. What People, Ideas & Objects are therefore doing is filling a “gap” in providing the business understanding of the oil and gas industry to the technology. This “gap” between the oil and gas industry and Oracle is something that is needed because the two are unable to speak coherently to each other, they need an interpreter, and that’s People, Ideas & Objects and the Preliminary Specification.

McKinsey Consulting suggest that large populations will be joining the middle class in the next 20 years. This will have a dramatic effect on the levels of demand for energy. If the oil and gas industry fails to respond to these demands due to the bureaucracies lethargic ways, will anyone note that there were alternatives proposed?

People, Ideas & Objects is soliciting commitments to fund the completion of the first phase of development, the Preliminary Specification. This phase has been budgeted at $100 million. Producers interested in supporting these developments should review our Revenue Model and contact me here.

Tuesday, August 07, 2012

Final - Preliminary Specification - C&G


Introduction

Ah Compliance & Governance, the module everyone loves to hate. It is my hypothesis that it is here, at compliance and governance, that everything went wrong. What I mean by that is in the 1960’s when the first computers were being introduced into oil and gas companies. The question was asked what will we do with them. And of course the answer was accounting. Then as they became ever more powerful and more capable they began to add more tasks to their duties and added the natural follow on concerns of tax, royalty and compliance. Soon the culture became focused on those “compliance” requirements of the “firm” and the Joint Operating Committee became something that was used over there. Soon after this engineers and geologists began speaking a different language to the “business” types. Divisions grew and the business of the business was focused on the corporation and its need to file the appropriate paperwork to the appropriate agency in the appropriate time frame on the appropriate colored form.

Anyway the real business of the business, the Joint Operating Committee somehow survived and if we align its legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks to the compliance and governance frameworks of the hierarchy everyone can start speaking the same language as the engineers and geologists and start to get some real business done. And as People, Ideas & Objects research has shown this would provide the oil and gas producer with greater speed, innovation and accountability.

Compliance & Governance is the eleventh module in the eleven module Preliminary Specification. It’s also no accident that I added Compliance & Governance last, as the question that should be asked is. How are we going to ensure compliance to all the regulations for all the module specifications that we have discussed so far? And I would assert that is why these are user based developments. But seriously, one thing governments seem to be fond of today is regulations on oil and gas companies. With Information Technology enabling various governments to issue technical business rules, technical specifications, XBRL syntax’s and other technological frameworks for these regulations. The ability to write these “frameworks” only seems to have encouraged them to write even more regulations. The larger point is that these frameworks do provide software developers with distinct advantages in enabling the regulations within the software.

As we had indicated earlier regarding the user communities determination of the scope of the People, Ideas & Objects application. Part of that determination of scope will include which regulations it will need to be in compliance too. With so many jurisdictions requiring compliance, each transaction may need to be assured to be in compliance with multiple jurisdictions. Add to that the transaction may be generated through a Joint Operating Committee owned by a variety of producers. And those producers may be composed from an international background and the Compliance & Governance module takes on an enhanced importance.

From the point of view of a producer maintaining the database and applications for all of the compliance frameworks that you have to be concerned with is a difficult task. The number of people you need to have to keep your applications up to date is significant. However, People, Ideas & Objects, as one software developer acting on behalf of the industry as a whole, the job becomes much more specialized and therefore manageable. Then again if we were building these applications with the purpose of serving an industry we will use the division of labor and specialization to manage these tasks in a way that would significantly lower the costs of compliance, and increase the quality of the producers compliance.

I foresee just the royalty compliance requirements of these applications potentially including many dozens of different jurisdictions. To approach this from a software engineering point of view as a sole producer is not cost effective in the least. To consider these costs are replicated across each producer firm, then we begin to see the costs of compliance escalating to the levels that they are today. There is another way, and that is what is being proposed here in People, Ideas & Objects, along with the many other innovative ways we are proposing to deal with the issues of the oil and gas industry.

Specialization and the Division of Labor

We have discussed the opportunity of centralizing the software development costs and efforts for Compliance & Governance frameworks under one roof. That is to say that instead of each producer building the in-house capacity to have their software and compliance capabilities maintained, it is possible instead to have it centrally managed through People, Ideas & Objects. I want to take that concept a bit further and break down another element of the cost of compliance and discuss how that element of compliance could also be done in a centralized manner. That element is of course the accounting and administrative costs incurred in meeting the regulations requirements. The costs of which are incurred in the human resources and associated overhead. Therefore these costs are an area where specialization and the division of labor could be applied and build real value for the producer firms.

It comes down to the question of where is the compliance work done at the Joint Operating Committee or the firm? It has to be done at the firm as all the variables are unique to each producer. However, that does not preclude the firms from having their accounting done by groups that work for many firms. Traditionally public accounting firms do their accounting work for many firms. People, Ideas & Objects will rely on our proposed network of Community of Independent Service Providers (CISP) who would be looked too to provide these types of services. These accounting services have been traditionally handled internally by the producer firm, however, I think from an efficiency point of view there may be an alternative means of having these types of work done. I think that it may be time that producer firms should consider that they undertake to have CISP member firms conduct the entire scope of accounting and compliance work for multiple producer firms.

If we were to approach the accounting and compliance reporting requirements on a specialization and division of labor basis we could add significant value to the industry. Taking the organization of the accounting across the industry and building the accounting and compliance needs for all of the producers would provide that value at lower costs and better service because of the efficiencies from the division of labor and specialization. Where each individual accounting service provider were specialized in one and only one compliance requirement. Particularly in the area of compliance reporting, especially royalty, where the knowledge of the people who were employed in the compliance service would be so specialized that they are able to ensure that their clients royalty obligations were the lowest possible. With royalties being the largest cost component of a producer this would certainly be of value but there are greater efficiencies than these available. There would also be the ability to manage the process with the most efficient team available.

These are the two elements of the costs of compliance. First, as we noted the cost of maintaining the software in compliance to the regulations. And two, the accounting that is done in keeping the firm up to date. If the software can be maintained on a global basis on behalf of the industry by People, Ideas & Objects then the one time costs of the software can be amortized over the industry as a whole. And if the accounting costs can be managed by also centralizing the accounting function, and as a result, specialization and the division of labor coming into play. Then the industry is benefiting by reducing their costs by reducing the two largest components of the costs of compliance in the most cost effective way. Yet, they have also done so in the manner where their compliance quality is higher.

Another element of quality also comes into play as a result of the proposal from People, Ideas & Objects. That element is time. If the timeliness of the information that is provided is within the guidelines, or is earlier, than the quality of that information is much higher. I think that what is proposed here with the high levels of software automation, specialization and the division of labor provide an assurance that the timeliness of the information that the systems we are building will be better then the deadlines imposed by the regulators. This timeliness doesn’t appear to come at the expense of any accuracy either.

Lastly when we discuss moving the compliance and governance frameworks of the hierarchy to the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks. We state that this provides an increased speed, innovativeness and accountability. For when you move compliance closer to operational decision making, accountability is the result.

Compliance for Everyone

In a capital intensive business such as oil and gas, access to capital is a critical capability the producer needs to develop within their operation. In order to have access to the capital you must meet the regulatory requirements and compliance needs of the markets. Therefore the Compliance & Governance module of the Preliminary Specification is a critical capability to all those that are dedicated to building an innovative oil and gas producer. That applies equally to ExxonMobil and the start up oil and gas operation.

And it should be a concern of ExxonMobil that the start up oil and gas operation has its compliance and governance in good shape. Why? What’s that saying you can’t pick your neighbors and you can’t necessarily pick all of your partners. Sometimes you have to deal with partners that you have no history with. You want to make sure that they are capable of operating in a fashion that is at least consistent with standard industry practices. It is those standard industry practices that include high levels of compliance and governance in today’s oil and gas industry operations. What about tomorrow’s environment?

As we have discussed in the past few days the level of expectation by regulators with respect to the compliance requirements are high. It would appear that there is no sense that any relief will be forthcoming, on the contrary, we should expect the level of requirements to grow. This is the only reasonable expectation, however, I would ask, have we implemented these compliance frameworks correctly? Have the regulations which are submitted in technical frameworks, been “integrated” to the ERP system, or just attached?

We can see the answer to that question when we find that no current ERP system calculates the Gas Cost Allowance for royalty calculations. To conduct these types of calculations you would need to integrate the royalty frameworks deeply within the ERP systems, and that clearly has not been done. So when it comes to the automation of the compliance frameworks, which is the objective of the regulators in publishing these technical frameworks, nothing has been done from the industry side.

I have always argued that there is two ways in which to approach the problems that we face in oil and gas. One is to automate the processes to high levels with systems. This requires the high capital costs of software development like what People, Ideas & Objects have proposed. Or, you can employ the human resources to maintain the compliance requirements on a manual basis. This is the method that industry has chosen to pursue up to this point. I would ask in times where;

  • The cost of capital is historically low.
  • The demand for human resources is somewhat constrained.
  • The regulators have published technical frameworks.

Why wouldn’t the oil and gas producers chose to develop the People, Ideas & Objects applications?

Automation of the compliance frameworks within the People, Ideas & Objects applications would provide many benefits to the innovative oil and gas producer. The costs of doing this engineering work is being amortized over the entire industry. Making these highly engineered software products, incidental in terms of actual cost to each producer. Access to these systems would be to the benefit to all of the producers in the industry. Enabling the capability of each individual producer to meet or exceed the minimum standard of industry expectations. In a world of increasing demands, your partner's capability could become a critical issue to your operation. There is a compelling argument here in the compliance part of the Compliance & Governance module.

Governance Over Self Organizing Groups

The manner in which much of the work is done in the proposed People, Ideas & Objects Preliminary Specification resonates with the ideas of how work will be done in the future. Direct supervision is replaced by self organizing groups who are motivated by and directed by the performance of their property. This becomes the altruistic nirvana that people aspire to work for; and the governance issues that this creates for the firm. This discussion deals with the governance issues and how the governance areas of the Compliance & Governance module reels in the vision of self organizing groups to something that is more workable and sensible in the commercial environment.

First of all the Military Command & Control Metaphor is not just for the Joint Operating Committee. Although we have discussed it in terms of just the JOC, there is nothing stopping the firm from using the organizational overlay within the firm. This would also apply to the Work Order system. These two tools would provide the firm with the ability to ensure that tasks were assigned and completed as budgeted and execution was consistent with the firms expectations. Recall by the use of these systems, it is understood that no other work is undertaken without the ability to charge time or costs to a work order. Effectively ensuring that no unauthorized projects are undertaken. The Work Order system could also provide the internal control necessary to ensure that the appropriate people necessary to achieve the governance are assigned to approved projects and are capable of meeting the requirements of the tasks. When “things” go wrong it’s usually at the beginning and having that “governance” information available is the objective of this warning.

When we talk about the firms and Joint Operating Committees internal controls, they seem to me to be a lost art in the tool kit of today’s management. The ability to set up a control to trigger a warning that something is happening that is inconsistent with normal policies, has been used more in the past then they seem to be used today. The power of technology seems to go hand in hand with internal controls. I think they provide a strong method of  governance that should be built into the People, Ideas & Objects governance area of the Compliance & Governance module. That is to say that a section be devoted to building database “triggers” and “stored procedures” that are used by the firm to monitor areas of the firms activities. These of course being available only to those individuals with the appropriate authority to access the data and information necessary to run the queries, and to fully appreciate the art and science of internal controls.

Governance Over the Service Industry

We want to discuss the governance of the capabilities process documented in the Research & Capabilities and Knowledge & Learning modules. Recall that this process takes the ideas that are generated throughout the oil and gas industry, and the service industry, funds them, develops commercial products and services, develops the producers capabilities, transfers those capabilities to the Joint Operating Committee and learns through their application. As we can see this is a long term process that would have many open ended elements that could be lost in the shuffle, or has aspects of the process that are too tempting.

Its probably best to take a step back and discuss why we are implementing this process in the Preliminary Specification. Simply we have two choices for providing the producer firm with the products and services of the service industry. We can let the market provide for all of the products and services, or we can have the producers conduct all of the work from manufacturing drill bits to producing the oil. We currently have a situation where the producers are dissatisfied with the service industry and are micromanaging that industry through control of the market. When producers are not satisfied with the size of the drilling rig fleet, they, the producers will commission more rigs. Sending the wrong messages to the service industry entrepreneurs. Producers have to work with the service industry, not against them, and certainly not accuse them of being greedy and lazy. When you take away the incentives to build a drilling rig, don’t accuse them of being greedy or lazy.

It is here within this “capabilities” process that the firms governance must enforce the boundaries of the firm. The division between the market and the firm, and where that division lay has to be enforced within this process. Simply the producer firm is only concerned with their asset base and their earth science and engineering capabilities. Everything else must be provided by the marketplace. The producer however has a role in providing a vision and leadership to the marketplace and seeding that market with funding. In a paper written by Professors Richard Langlois and Nicholas J. Foss entitled “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.” they note.

The organizational question is whether new capabilities are best acquired through the market, through internal learning, or through some hybrid organizational form. And the answer will depend on (A) the already existing structure of capabilities and (B) the nature of the economic change involved. p. 21

The economic change the producer is facing is the commodity prices are rewarding the innovative producer. To focus on purchasing more drilling rigs is not where a producer can increase value. The governance of the producer must maintain the focus on where the producer can gain the greatest value, on finding and developing oil and gas reserves, otherwise...

If by contrast, the old configuration of capabilities lies within large vertically integrated organizations, creative destruction may well take the form of markets superseding firms. History offers many examples of both. p. 21

I am going to suggest that reliance on the Work Order and Military Command & Control Metaphor of the Preliminary Specification be the means of how the producer maintain focus and governance on this process. Distraction away from the objective of the firm is a very real possibility in dealing with the noise of the marketplace. The Work Order will ensure that no work is done on unauthorized projects and that a chain of command is imputed in the administration of each project. This will help to ensure that each project is ultimately focused on providing the producer with earning greater returns on oil and gas reserves enhancement and production.

Automation of the Compliance Frameworks

The question is with the future of work being more and more self directed, and motivated through performance, and at the same time with the work of computers automating more of the lower level work, how does compliance and governance fit into this vision?

We will be highly successful in building the software described in the Preliminary Specification. And yet have a real mess on our hands in terms of compliance and governance if we don’t have an answer to this question built into that software. That is not what we are doing at People, Ideas & Objects. As much as everyone would like to ignore this difficult area of the business world it is a very necessary part of the business. And by saying that I know I have offended those people who are truly passionate about the business of compliance and governance. And its those people who will know how to implement these frameworks in the manner that solves the problem that we are discussing. As for every problem there are people who have a passion that will drive them to solve it. Such is the manner of user driven software developments.

I know enough of the topic that this can be done in a manner that makes the user aware of the compliance and governance requirements of their actions. Yet not mindlessly warn them with pop up windows every ten minutes of the day. Where decisions can be informed of the consequences before they are made as opposed to after the fact. Where information can be contextually provided as opposed to having being researched. The point of the matter is that the user interface should be a rich environment where the underlying intelligence of the system should be operating and providing much of these requirements. That is if we purposely set out to build it.

One of the other areas that we discussed in the Compliance & Governance module was the scope of the regulations that the producer firm was now exposed to. A simple firm, well scratch that, there is no simple firm. A producer is required to meet quite a few different jurisdictions for a variety of different requirements. Staying on top of these requirements is becoming a full time job for many of the people within their organizations. If the trend is for more regulations then the demand for more people will increase, or alternatively, automation of the compliance and governance frameworks will become the necessity.

Compliance & Governance of the Innovative Oil & Gas Producer

Throughout our discussion of the Preliminary Specification there has been a spirit of cooperation between the producers that participate in the Joint Operating Committee and the vendors in the service industry. Oil and gas remains and will always be a very competitive industry and this spirit does not detract from that competitiveness. The individual producer is ultimately focused on developing their land and asset base, and expanding their earth science and engineering capabilities for the financial gain of their shareholders. Control of the corporation, and hence its competitiveness, should be through the governance interface of the Compliance & Governance module.

This emphasis on governance has to consider the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their firm. Some may see governance and innovation being two opposing forces on the same scale. That may be but I don’t think they have to conflict. You can have good governance and remain highly innovative and competitive. For instance look at Apple. No one would doubt they run a tight ship. I would suggest that it would be difficult for me to see an innovative corporate mindset come about from a poorly governed process.

One of the research questions that we asked in the Preliminary Research Report was “can the scope and understanding of the process of innovation; be reduced to a quantifiable and replicable process?” The answer to that is difficult to quantify. First you need the appropriate organization, such as the Joint Operating Committee, and it has to be supported by the aligned frameworks of the producer, and then you need a service industry that is collaborating with the producers to develop the science and engineering products and services needed to develop the industry. So with that, that makes the answer to the research question an unqualified yes.

Having everything in place is no guarantee that innovation will arise. The people are a necessary element of the process. The best a producer can do is to provide the environment that will enable and enhance innovation and that is what People, Ideas & Objects Preliminary Specification is designed to do. In terms of governance of that process I think we have given the producer some unique tools to maintain control over their firm and the Joint Operating Committees that they participate in. These tools include the Military Command & Control Metaphor, the Work-Order system, the Purchase-Order system, etc.

The one area that we should maybe consider increasing the governance of is the capital allocation process. This is discussed in the Financial Marketplace module. By maintaining governance over the process and ensuring that it is followed would provide real value for the firm. Of particular concern would be to ensure that the process of reviewing all of the possible investment opportunities were reviewed. And secondly that all possible alternatives for investing in those alternatives was considered. Its the hard work of beating around the bush that will find the worthwhile investments.

Governance Over the Joint Operating Committee

Throughout our discussion of the Preliminary Specification we have been describing two distinct organizational structures. The producer firm and the Joint Operating Committee. Up until now we have focused the Compliance & Governance modules discussion on the producer firm. The manner that the Joint Operating Committee is operated through the People, Ideas & Objects software application modules is to identify and support the seven frameworks that the JOC naturally defines. The question therefore becomes how does the producer firm maintain governance over the producers working interest share of the Joint Operating Committee?

First we have the Military Command & Control Metaphor that is needed to be adopted across the organization so that producers within a Joint Operating Committee can pool their human resources, and impose a chain of command, control and governance over those resources. This pooling is done to offset the shortages of technical resources in the earth science and engineering fields that we have discussed. Since the pooling is comprised of resources from multiple producer firms the governance over those resources in the Joint Operating Committee is deferred to the Committee itself.

Each Joint Operating Committee is governed by their own agreement, operating and accounting procedure in most instances. These are the documents that are used to provide the operational means for decisions, policies and procedures to be used. The influence of one producer to skew the results of these decisions, policies and procedures may occur if they have a high percentage of the voting rights during the establishment of the agreement. Other then that the Joint Operating Committee will be left to operate based on the parameters that have been set and have minimal need for voting on these points in subsequent years. Where they will be active is in the budgets and the decisions as to the directions as to what and where the facilities should be developed. For this there are mechanisms to deal with the (non) participation of other producers and these will be documented by the JOC.

As we can see the voting rights the producer has in the Joint Operating Committee is the extent of their influence in the day to day business. Other then their determination of the amount of capital they will be expending the JOC will operate in a completely autonomous fashion based on the parameters that were agreed to by the founding producers. Yes there are voting rights and those may be significant in terms of their influence over the outcome but the producer organization and the JOC are two separate organizations for all intents and purposes.

Nonetheless, the need to ensure that the governance of the operations of the JOC are within the normal scope of operations are a responsibility of the management of each of the producer firms. How then can the governance of the producer be extended over the JOC in a manner that meets this criteria and respects that each producer in the JOC will have similar concerns?

When a producer adds up the number of JOC’s they have an interest in, it could easily number in the hundreds. The simple management of hundreds of properties operating on a semi-autonomous basis presents its own issues and opportunities. Documenting all of the activities that occur within the JOC is not the issue. This would be the easy part of putting an interface over the various data elements and presenting that within the governance section of the Compliance & Governance module. I think we have to get more sophisticated than that and start capturing the activities and actions that are occurring within the JOC’s. Every time there is a vote the results of the vote are reported through to the governance interface to each of the partners. Every time there is an election, a non-participation, capital expenditure decision, etc., its reported through to the governance interface to each of the partners. Then the users of the data have a summary of the actions that took place in those number of JOC’s and can determine if any of the actions require their further attention.

Having the actions of interests and the documentation that backs up the actions taken would provide a good starting point for each producer within a Joint Operating Committee. There the user could take further actions themselves if the governance of the JOC was in some way contrary to the policies and procedures of the producer firm.

Governance Over Lessons Learned

The innovative oil and gas producer is supported through the People, Ideas & Objects application modules. Their innovativeness is what the system was designed to achieve. This is based on the fundamental belief that the higher commodity prices are financing greater innovation and the most innovative producers will be the most profitable. However, as we know with innovation there is an amount of failure that is a natural part of the process. Therefore with greater innovative success there will be greater failure. This deals with the governance of failure within the producer and Joint Operating Committee and how it is handled in the Compliance & Governance module of the Preliminary Specification.

The first thing we should do is define these failures in their proper context and call them what they are generally referred to as lessons learned. These will be documented in an area within the governance section of the Compliance & Governance module for review by those who are deemed authorized to review this information. As we discussed, a producer may have hundreds of interests in Joint Operating Committees located throughout the world. The ability to know what works and what doesn’t work, where the lessons are learned on a daily basis would be a valuable resource for a firm. Recall in the Knowledge & Learning module these lessons learned are being captured in each of the Joint Operating Committees. What the Compliance & Governance module does is aggregate these lessons learned from each of the JOC’s that the producer has an interest in and presents them in a database with all of the other JOC’s they have an interest in.

The point of this exercise is to try and avoid the simple problem of doing the same thing over and over and expecting different results. If the firm knows that a certain operation is unsuccessful then it should cease to conduct that operation. Very simple in concept, very difficult to implement. With each of the producers within a JOC having access to the lessons learned the more eyeballs that see these, the less they might occur. Nonetheless the lessons learned are somewhat after the fact in terms that the horse has escaped, it is worthwhile to know the information for others to avoid the same situation. Lessons learned may also show the way to the ultimate success. I would think that it might be policy that a firm require their designates to the JOC report via the lessons learned interface all material deviations in operations. This would update the Knowledge & Learning for the JOC and the Compliance & Governance modules for each of the producer firms so that learning could be spread as far and as quickly as possible.

It was through our research that we discovered an interesting anomaly. Do these collaborations within the JOC create a leakage of proprietary knowledge and capability from one producer to the other? The question therefore becomes how is this proprietary information and capability deployed on an as needed basis? Professor Giovanni Dosi notes that “although the free movement of information has occurred in industries for many years, yet has never been easily transferable to other companies within those industries. The ability to replicate a competitive advantage from one company to another is not as easy, and may indeed be not worthwhile doing.” Dosi (1988) goes one step further and states, “even with technology license agreements, they do not stand as an all or nothing substitute for in house search.” A firm needs to develop “substantial in-house capacity in order to recognize, evaluate, negotiate and finally adapt the technology potentially available from others.” Therefore why not focus on the need to increase the company's own unique and specific sources and directions of competitive advantage? This also imputes that the free flow of information between producers through collaborations in the Joint Operating Committee would increase the knowledge, yet not expose anyone of the specific organizations to any specific losses of key knowledge, proprietary information or capability.

Within a JOC each producer is entitled to this information irrespective of the origins of the information. What is needed is the means to mitigate the losses that might occur by repeating the same mistakes on a corporate basis. The ability to learn from its mistakes should be a strong part of any corporate governance module and that is why it is included here in the People, Ideas & Objects Compliance & Governance module.

The Compliance & Governance Opportunity

When will the demand for more information from regulators end? Maybe a more constructive question would be to think how can we get ahead of this situation on a more permanent basis? Part of the answer to that question is software. We are approaching the development of comprehensive software for the innovative oil and gas producer with People, Ideas & Objects. This should be seen as an opportunity to take the time to rethink the compliance and governance of the producer firm. To begin the implementation of software that will solve the issues of compliance and governance on a more permanent basis. And by that I mean from the point of view of using software, the division of labor and standardization as the solutions to the problem.

Assuming that each producer has to meet regulatory requirements from a to z, that’s 26 jurisdictions. That’s 26 specialized talents that they would need on staff in order to meet those regulatory requirements. Now on aggregate, the industry has those same 26 jurisdictions. Why would we not break this down into 26 teams who are specializing into one jurisdiction each on behalf of all producers? Using software that is designed to meet the needs of that jurisdiction, they could do the specialized work on behalf of the industry. This could apply to small start up firms and to Exxon Mobil. The specialized nature of the staff at each service provider would be more efficient and less costly than having the staff in house. Add to that the costs of developing specific software to meet the compliance needs being amortized over the entire industry, as opposed to incurred at each firm, and the costs of compliance are lower with better service. Please note this would require specialized software to be developed and run at each of the service providers as well.

If we review Professor Giovanni Dosi’s three key factors of innovation we find that regulation is a part of the third key factor. Clearly it is a drag on innovation. And what we have here is an opportunity to reduce the amount of drag on innovation in the industry.

Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)

At some point the volume of regulations will become economically impractical for each producer to maintain on their own. I think that time has passed. It is at that point the regulations will force the producers to look at other means to organize the way they meet these requirements. In today’s marketplace that has to include software, the division of labor and standardization. That is the opportunity that is being presented here in People, Ideas & Objects Preliminary Specification.

Governance Over the Process of Innovation

One of the areas that we covered in our previous discussion in the Compliance & Governance module of the Preliminary Specification. Is that good governance and innovation are not necessarily mutually exclusive. We want to discuss the “Lessons Learned Interface” that is initiated in the Knowledge & Learning modules of each Joint Operating Committee, and are aggregated in the Compliance & Governance module of the Preliminary Specification. And a new interface that we are calling “The Innovation Library.”

What we know about innovation can be summarized by Professor Giovanni Dosi. He states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or “tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

With the demands for more earth science and engineering being required for each barrel of oil and gas produced. And the need to keep up with the steep trajectory of those sciences over the coming years. The oil and gas firm, and the individual Joint Operating Committees will be learning substantial volumes of new and valuable information about the business. The innovative oil and gas producer will also become capable of innovating off of these developments and expanding the knowledge of both the organization and quite possibly the science. Keeping good governance over these processes would seem to be counter productive, however, does it have to be?

One of the first things that we can do to provide good governance is to ensure that the same mistakes are not made over and over. Having the lessons learned populated from each of the Joint Operating Committees, up to each of the participant producer firms. Where each producer firm has the aggregated lessons learned from each of the Joint Operating Committees that they have an interest in. Then they can apply any lessons learned from any of the JOC’s to other JOC’s as may be required.

Another thing I think that we can do in the governance section of this module is provide a strong understanding of the innovative process. By compiling and assimilating the process of innovation into an understandable business process then the people who are charged with good governance will be able to understand what good innovation is, and what bad innovation is. Having a library of the science of innovation, some written by Professor Dosi, would alleviate the guess work and concern that some of the activities that were occurring in the firm were moving the firm down the wrong direction, when in fact they were good innovations. We know that innovation can be reduced to a quantifiable and replicable process. Therefore it should be governed on the same basis. However, that governance needs to be done in a manner that it is apprised as to what good innovation consists of. That good governance has a responsibility to understand the process of innovation just as much as the innovators do. Let's call this interface “The Innovation Library” of the Compliance & Governance module.

In general the uncertainty associated with innovative activities is much stronger than that with which familiar economic model deals. It involves not only lack of knowledge of the precise cost and outcomes of different alternatives, but often also lack of knowledge of what the alternatives are (see Freeman 1982; Nelson 1981a; Nelson and Winter 1982). 

This is not what those in corporate governance want to hear. What however should make them happier is that we have the “Research Budget Allocation Interface” in the Research & Capabilities module. Recall that this interface documents the information that the firm is involved in, and summarizes the activities that are currently ongoing and have costs budgeted. If a Work Order has some Research or Innovation being undertaken then it will be listed in the interface. If an AFE has some of these activities it too will be listed in the interface. Within the Research Budget Allocation Interface the ability of its user to review all of the activities that are ongoing within the firm would be possible. The risk of any duplications would be discovered and the budget allocation for research and innovation costs would be prioritized and given some corporate direction.

Additionally there is the Military Command & Control Metaphor (MCCM) providing governance over the innovation process. The MCCM was developed in order to be able pool the technical resources in the Joint Operating Committee, however it has just as much application in the producer firm. By using the MCCM for the innovative activities within the Research & Capabilities module, then the firm is able to keep a tight control over whom is involved in the innovation activities. By imposing a chain of command, and control over the people who may be seconded from different departments in the firm, the MCCM helps to provide good governance over the innovation in the firm.

We know there is more to innovation then this. Sometimes it is the un-qualifiable and un-quantifiable that we are seeking. Professor Dosi notes.

In fact, let us distinguish between (a) the notion of uncertainty familiar to economic analysis defined in terms of imperfect information about the occurrence of a known list of events and (b) what we could call strong uncertainty whereby the list of possible events is unknown and one does not know either the consequences of particular actions for any given event (more on this in Dosi and Egidi 1987). 

and

I suggest that, in general, innovative search is characterized by strong uncertainty. This applies, in primis to those phases of technical change that could be called pre-paradigmatic: During these highly exploratory periods one faces a double uncertainty regarding both the practical outcomes of the innovative search and also the scientific and technological principles and the problem-solving procedures on which technological advances could be based. When a technological paradigm is established, it brings with it a reduction of uncertainty, in the sense that it focuses the directions of search and forms the grounds for formatting technological and market expectations more surely. (In this respect, technological trajectories are not only the ex post description of the patterns of technical change, but also, as mentioned, the basis of heuristics asking “where do we go from here?”) p. 1134

This has / will become the nature of the oil and gas business. Good governance over the innovation process will have to limit the amount of its involvement so that the innovations can develop. At the same time this does not preclude the oversight mentioned at the beginning of this modules description. And there may be substantially more “good governance” that the user community can determine when their involvement in these developments is unleashed.

We want to continue with our discussion of the corporate governance over the uncertainty of the innovation process. And how good governance will seek to moderate the investments in innovation and attempt to make it a routine aspect of the firms activities. We have noted that innovation is a quantifiable and replicable process, it is however, anything but routine. At the same time I want to reiterate that innovation and good governance are not mutually exclusive. And with that jumble of contradictions lets begin.

Writing the Preliminary Specification is an innovation that People, Ideas & Objects is undertaking. It is something that is significant and will happen only once. It is not something that will happen every day and is unusual for it to be undertaken. These are the characteristics of innovation. When a firm undertakes to do something innovative it is usually something that is new and significant to their firm. It involves some risk and imputes a high level of uncertainty. Professor Giovanni Dosi notes.

However, even in the case of “normal” technical search (as opposed to the “extraordinary” exploration associated with the quest for new paradigms) strong uncertainty is present. Even when the fundamental knowledge base and the expected directions of advance are fairly well known, it is still often the case that one must first engage in exploratory research, development, and design before knowing what the outcome will be (what the properties of a new chemical compound will be, what an effective design will look like, etc.) and what some manageable results will cost, or, indeed, whether very useful results will emerge. p. 1135

Unfortunately this is the state of the oil and gas business as it stands today. That every well drilled is literally the result of someone's theory as to what the existence of oil and gas is. Certainly anything classified as exploratory, and much of the development work, would meet this criteria of being innovative.

As a result, firms tend to work with relatively general and event-independent routines (with rules of the kind “... spend x% of sales on R & D,” ... distribute your research activity between basic research, risky projects, incremental innovations according to some routine shares ...” and sometimes meta-rules of the kind “with high interest rates or low profits cut basic research,” etc.). This finding is corroborated by ample managerial evidence and also by recent more rigorous econometric tests; see Griliches and Ariel Pakes (1986) who find that “the pattern of R & D investment within a firm is essentially a random walk with a relatively low error variance” (pp. 10 - 11). 

Going back to the example of People, Ideas & Objects. Writing the Preliminary Specification is not routine, however, it is in a long line of routine research and development projects that have been undertaken to explore the development of user driven software for the innovative oil and gas producers, based on using the Joint Operating Committee.

In this sense, Schumpeter’s hypothesis about the routinization of innovation (Joseph Schumpeter 1942) and the persistence of innovation-related uncertainty must not be in conflict but may well complement each other. As suggested by the “late” Schumpeter, one may conjecture that large-scale corporate research has become the prevailing form of organization of innovation because it is most effective in exploiting and internalizing the tacit and cumulative feature of technological knowledge (Mowery 1980; Pavitt 1986). Moreover, companies tend to adopt steady policies (rules), because they face complex and unpredictable environments where they cannot forecast future states of the world, or even “map” notional events into actions, and outcomes (Dosi and Orsenigo 1986; Heiner 1983, 1988). Internalized corporate search exploits the cumulativeness and complexity of technological knowledge. Together with steady rules, firms try to reduce the uncertainty of innovative search, without however, eliminating it. pp. 1134 - 1135

This is where corporate governance does not necessarily conflict with innovation. Priorities and budgets need to be set and established. A corporate focus has to be imposed. That is what a good corporate governance model will provide the innovative oil and gas producer. Otherwise the firms pursuit would be an out of control science experiment. I think with the governance mechanisms that have been mentioned to date, the “Research Budget Allocation Interface” and the Military Command & Control Metaphor provide the beginnings of good governance. We’ll continue on with our discussion, however, I want to stress again that the user communities input into the Preliminary Specification will be able to provide substantial value in this area.

Governance Over the Firm’s Collaborations

We want to discuss the governance of the firm and Joint Operating Committees collaborations. It is these collaborations between the industry participants and the service industry that will provide the fuel for the producer and Joint Operating Committee innovations. Good governance over these collaborations is also necessary from the point of view of ensuring that the firms capabilities are not unnecessarily leaked to areas where they are not required. We have stated throughout the Preliminary Specification that innovation is as difficult to copy as it is to generate within the firm. That to copy the capabilities of another firm is as costly as developing them on your own, and that is still the situation. What this discussion is about is good governance.

We begin by discussing Professor Giovanni Dosi’s definition of a technological trajectory. The definition of a technological trajectory is the activity of technological process along the economic and technological trade offs defined by a paradigm. Dosi (1988) states “Trade-offs being defined as the compromise, and the technical capabilities that define horsepower, gross takeoff weight, cruise speed, wing load and cruise range in civilian and military aircraft.” People, Ideas & Objects assumes the technical trade-off in oil and gas is accurately reflected in the commodity pricing. Higher commodity prices finance enhanced innovation.

These trade-offs facilitate the ability for industries to innovate on the changing technical and scientific paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs the change and is usually abundant and available at low costs. For innovation to occur in oil and gas, People, Ideas & Objects would assert that the ability to seek and find knowledge, and to collaborate are two “commodities” that are abundant today. With their inherent low direct costs, knowledge and collaboration are the triggers for a number of technical paradigms which will provide companies with fundamental innovations.

We have throughout the Preliminary Specification enhanced collaboration between the producer and other members of the various Joint Operating Committees the producer has partnered with, members of the industry, service industry participants and the general industry at large. These collaborations are with the expressed purpose of developing the technology and understanding of the firm and enhancing its capabilities. There are however limits to this exposure. For a variety of legal, proprietary, and other reasons certain things may not be able to be discussed openly. There is also the case that information regarding a certain capability will only be discussed with partners that have an interest in that property. That to release it to other partners would not be in the interest of the firm. How is the governance of these collaborations managed?

We can certainly restrict the capabilities within the “Dynamic Capabilities Interface” to those situations that in which they are authorized. However, does that solve the problem. The issue comes down to the collaboration itself. Does the information slip out in the discussion between the individual and their counterpart at company b? What can be done once the collaboration has leaked the data? Not much and that is the issue that the governance has to deal with.

One of the first things we can do is centralize the publication of the collaborations to one area. There they can be approved for content before publication, and if any collaboration is deemed to be too revealing then it can be returned for editing, and further review before publication. This would slow the process of collaborations however that is a minor issue compared to the loss of critical information. Secondly the review before publication could be placed only on certain people who know the corporate secrets, then the workload would be less onerous. The problem with either of these situations is that it would take the time of someone very senior within the organization. To do this would require that we have a centralized “Collaboration Interface” that aggregates the firms collaborations into one central area. Therefore we will build this interface within the governance area of the Compliance & Governance module.

Governance Over the Value Add

The level of innovation within the oil and gas producer has / will become more and more challenging as the earth sciences and engineering disciplines continue their steep trajectories. With so much activity in this area, and the implications being so broad and far reaching there will be areas where substantial value might be left uncultivated by the producer. These could be in the scientific or business areas of the firm and the question becomes who is responsible for seeing that this value is captured? This discussion will detail how the Compliance & Governance module of the Preliminary Specification will help to deal with this situation.

With our look at technological paradigms and the effect they have on scientific and innovative trajectories in oil and gas. When discussing these points on innovation, it is important to remember that the sciences, the trajectories they are on, and the opportunities they generate for a producer, are accelerating and will continue to do so. With this in mind, we note that Professor Dosi suggests two separate phenomenon are observed:

  • First, new technological paradigms have continuously brought forward new opportunities for product development and productivity increases. 
  • Secondly A rather uniform, characteristic of the observed technological trajectories is their wide scope for mechanization, specialization and division of labor within and among plants and industries. p. 1138

As we have learned these new opportunities will be in the technological and business areas of the firm. The opportunities will be within the scope of the oil and gas businesses competitive advantages of its land and asset base, and earth science and engineering capabilities. However, much of it will also be generated outside of the firms core area, in the service industry, through the further division of labor and specialization, and in non-related business areas that are new and not well serviced by existing businesses. Most of this business value will be easily captured for the firm. That however does not necessarily mean that it should be pursued by the firm. It is critical at these times that the governance model of the firm stick to its knitting and pursue its key competitive strategies. That to move outside of its core strategies, to pick up some of these low lying fruits would be to distract it from the real job at hand. This has to be the job of those who are ensuring the governance model is upheld. At the same time, any value that is in the core competitive strategy that is not realized, must be captured and steps taken to systemically realize the value from that point forward.

To ensure that the firm remains on its competitive strategy there will be one interface developed with two different elements to it. This will be called the “Capabilities & Deployment Additions Interface.” The first element will be a summary of the additions that were made to the “Dynamic Capabilities Interface.” By reviewing the current additions, i.e. all of the text that was added in the last quarter, to the interface. The user will be able to determine if the firm has been able to maintain its overall focus on developing its capabilities in line with its goals and objectives. If it sees that it is suddenly researching the development of drill bits then it knows that it is on an inappropriate direction. The second element is similar in its characteristics but uses the “Planning & Deployment Interface.” With the deployment of its capabilities it can see that the firm has deployed its resources in a manner that is consistent with the firm's objectives and goals. That no capabilities were deployed to commission drilling rigs was done during the quarter.

In the same way that the capabilities and deployment of them can be reviewed, the AFE and Work Orders can be reviewed for the quarter as well. These will provide an understanding of what the firm has done in participation with the partners and other producers in the industry. After reviewing these activities the user of the “Capabilities & Deployment Interface” will be able to ensure that the focus of the producer has remained consistent with the objectives of the firm. Any potential deviations could be dealt with through discussions with the management and corrective actions taken.

Focusing on where it can generate the greatest value is the only concern of the firm. To pursue the value that might be available in other areas is a distraction that should be of no concern to the firm. However, understanding that at the same time there is new value being generated in the firm as a result of the steep trajectories that the relevant and core strategic science is on. That this new value may be reflected in other areas of the firm, and needs to be captured is part of the “Capabilities & Deployment Interface” of the Compliance & Governance module.

Governance Over the Capabilities Revenues

Through our discussion of the Preliminary Specification we have noted that the innovative oil and gas producer will have two distinct sources of revenue. The first is the oil and gas production, and the second is the value added process of the capabilities they provide to the various Joint Operating Committees and working groups they participate in. This discussion will discuss the governance over the capabilities to ensure that the revenues are charged to the appropriate partners.

With the expanding volume of work required for each barrel of oil produced. The demand for earth science and engineering resources continues to grow. The supply of these resources are somewhat constrained as the ability to increase them in the short to midterm is difficult. People, Ideas & Objects has approached the supply of these technical resources by developing software that defines and supports a greater division of labor and specialization. And by pooling the technical resources available from the partners represented in the Joint Operating Committee. This pooling will take the available capabilities of each producer and match them to the needs of the property to ensure that the requirements are fulfilled. Eliminating the unused and unusable surplus capacity of resources in the industry. Capabilities provided in this fashion will be costed to the joint account on the basis of an industry standard cost that recognizes the education, skill and experience of the resource.

Revenues from the provisioning of engineering and geological capabilities to the Joint Operating Committee are a necessary part of the oil and gas business. With the expansion in the volume of work required for each barrel of oil produced there is commensurate difficulty in securing these capabilities in-house. There is also increased difficulty just to maintain the capabilities. The need for the producer to build the capabilities becomes an issue of how to develop them if they can not source a dedicated revenue stream to support them. By having a dedicated revenue stream to support the engineering and geological costs then the producer can better manage their operation.

In terms of governance the Preliminary Specification will provide the “Capabilities Revenues & Support Interface” in the Compliance & Governance module. This will provide a summary of all of the charges to the various joint accounts and working groups for any engineering and geological resources during the period the user requests. This interface will also have targets for the departments to achieve in terms of their percentage cost recoveries and budgeted incomes. These targets should be able to be allocated to the individual joint accounts.

These revenues should be displayed in the proper context on the “Capabilities Revenues & Support Interface.” That is to say they should be presented in a pro-forma income statement showing the costs of these resources, which would include resource costs and the various other costs of rent, technical support, equipment etc. This would show the progress in terms of how the firm had moved towards meeting its targets.

Governance Over Coordination Without Incentives

What I am seeing develop with our review of Professor Richard Langlois writings. Is that there will be an element of the Preliminary Specifications Compliance & Governance module that will be devoted to what we would call “operational governance.” We will discuss the incentives vs. coordination issue of any operation that a Joint Operating Committee undertakes. This deals with the current conflict between the producers and service industry and the high costs associated with any field operation. Producers feel that the costs are out of control in the field and are imposing cost controls in an effort to manage them. People, Ideas & Objects feel that coordination of the field operations will provide the appropriate means to control costs and will also provide for better outcomes. The coordination coming about through the modules in the Preliminary Specification, specifically the Research & Capabilities and Knowledge & Learning. In his paper “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization” Professor Richard Langlois states.

More generally, we are worried that conceptualizing all problems of economic organization as problems of aligning incentives not only misrepresents important phenomena but also hinders understanding other phenomena, such as the role of production costs in determining the boundaries of the firm. As we will argue, in fact, it may well pay off intellectually to pursue a research strategy that is essentially the flip-side of the coin, namely to assume that all incentive problems can be eliminated by assumption and concentrate on coordination (including communication) and production cost issues only. p.17

Let's assume for a moment that the People, Ideas & Objects Preliminary Specification is operational in your firm. You have the Military Command & Control Metaphor, the Planning & Deployment Interface, the AFE and Job Order systems operational as expected however your results continue to disappoint and the cost overruns are tragic. How do we ensure that the performance expectations are met and these poor performing situations are identified quickly and dealt with?

Either way it boils down to the same common-sense recognition, namely that individuals - and organizations - are necessarily limited in what they know how to do well. Indeed, the main interest of capabilities view is to understand what is distinctive about firms as unitary, historical organizations of co-operating individuals. p. 17

We should have an interface in the Compliance & Governance module that provides a user with the ability to oversee the operations being conducted in the Research & Capabilities and Knowledge & Learning modules. This interface should be called the “Operational Review & Governance Interface” and give its user access to the operational information that is being undertaken. There they can interact, if desired, and supervise or mentor the project manager to ensure that the objectives are met and the costs are maintained. All with the understanding of how these objectives can be achieved. And that is through enhanced coordination, not through incentives.

In saying this, it's more about governance then about supervision. You want to be able to effect change when things go wrong, and you want to identify when things go wrong quickly, however, you also don’t want to interrupt the day to day operations.

Governance Over the Deployment of Capabilities

We are discussing the operational governance of the firm and Joint Operating Committee. An important element of this discussion is the capabilities that these organizations have access to. Capabilities are documented in the Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification. And are one of the key competitive advantages of the innovative oil and gas producer. Therefore from a governance point of view these capabilities need to be safeguarded and ensure that they are kept for your firms eyes only. Nothing could be further from the truth. The use of these capabilities will cause their leakage to outside firms. And it is imperative that the firm consider the use of their capabilities as having the right information deployed to the right people at the right time. Governance therefore should be more concerned with the appropriate use of the capabilities, rather than the hoarding of information. From Professor Richard Langlois “Organizing the Electronic Century.”

"This is the basic modularization of the market economy. It accords well with the modularization G. B. Richardson (1972) suggested in offering the concept of economic capabilities. By capabilities Richardson means "knowledge, experience, and skills" (1972, p. 888), a notion related to what Jensen and Meckling (1992) call "specific knowledge and to what Hayek (1945) called "knowledge of the particular circumstances of time and place." For the most part, Richardson argues, firms will tend to specialize in activities requiring similar capabilities, that is, "in activities for which their capabilities offer some comparative advantage" (Richardson 1972, p. 888)." p. 27

What is it that we are trying to achieve in employing these capabilities? It is of course to generate value. But more importantly to generate value on behalf of the owners represented in the Joint Operating Committee. In economic terms this value is called “externalities.” After the operation, after the deployment of the right capabilities at the right time by the right people the value should have been gained by the members of the Joint Operating Committee.

So why don't we observe everywhere a perfectly atomistic modularization according to comparative advantage in capabilities - with no organizations of any significance, just workers wielding tools and trading in anonymous markets? We have already seen the outlines of several answers. The older property rights literature, we saw, would insist that the reason is externalities, notably the externalities of team work arising from the nature of the technology of production itself. The mainstream economics of organization is fixated on another possibility: because of highly specific assets, parties can threaten one another with pecuniary externalities ex post in a way that has real ex ante effects on efficiency (Klein, Crawford, and Alchian 1978; Williamson 1985). Richardson offers a somewhat different, and perhaps more fertile, alternative. Firms seek to specialize in activities for which their capabilities are similar: but production requires the coordination of complementary activities. Especially in a world of change, such coordination requires the transmission of information beyond what can be sent through the interface of the price system. As a consequence, qualitative coordination is necessary, and that need brings with it not only the organizational structure called the firm but also a variety of inter-firm relationships and interconnections as well." pp. 27 - 28

If the Joint Operating Committee coordinates these capabilities in the appropriate manner then the externalities will flow to the producers represented there. That is what the governance of the operation is most concerned about. That there was leakage of some documentation of these capabilities during the operation is immaterial to the externalities and the competitive position of the firm. Recall during our review of Professor Giovanni Dosi for the Preliminary Specification. His research showed that it took an equal and sometimes greater effort to copy another firm's capabilities then it did to generate the capabilities themselves. It is therefore more effective for a firm to focus on their key competitive advantages of their land and asset base, and their earth science and engineering capabilities. And the effective and efficient deployment of these competitive advantages on a “just in time” basis.

We have asserted and I am certain that it is generally agreed that the oil & gas industry is moving towards its scientific basis as its primary form of competitive advantage. The days in which financiers or lawyers could build viable producers based on their skills are numbered if not nonexistent. There is also a perception that is developed through the Preliminary Specification that the producer is a firm that maintains financial interests in a variety of Joint Operating Committees. That the producer will deploy their capabilities to these assets when and where they are needed and as the capabilities are developed. These processes are under constant levels of change and innovation in the innovative producer which causes “Dynamic Transaction Costs” to be incurred, and for people to question the direction of the changes. What is needed is a method of governance in the Compliance & Governance module over the overall process of change to ensure that the ship maintains its course and the costs remain in line. Quotations are from Professor Richard Langlois “Transaction Costs in Real Time” paper.

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

We introduced the “Operational Review & Governance Interface” and we will now continue with its discussion. In our previous discussion we had the ability to mentor the Project Manager and oversee or supervise the operation if required. What we need to discuss now is broader and more global in scope. An interface that encapsulates the entire firm's operations so that the user can see that the direction the firm has taken in terms of capabilities development is being optimized in its Joint Operating Committees, etc. It would be of little value if the firm was expending valuable resources on developing its capabilities on fracing when none of the Joint Operating Committees were deploying, or able to deploy the technologies.

With the “Operational Review & Governance Interface” the user would be able to review the entire operation as it happened. From the “Dynamic Capabilities Interface” to the “Planning & Deployment Interface,” AFE, Job Order and “Lessons Learned Interface.” Review all of the actions taken and the documentation that was generated during the operation to determine what was the critical cause of the success or failure of the operation. This could be done in fine detail or in summary form to oversee the many operations that may have been conducted.

Another variable that is being captured by the Preliminary Specification is the “Dynamic Transaction Costs” themselves. These are the costs associated with change. When people run into these costs then they will know to code them to the Dynamic Transaction Costs account in the chart of accounts. This will be a red flag in the “Operation Review & Governance Interface” for the user to trigger on. When they see high levels of “Dynamic Transaction Costs” then they know the operation ran in to high levels of change and / or innovation. Therefore they will be able to see the implications of these costs in the knowledge and information in the interface. And know that either some significant change or innovation was the result.

Governance Over Operational Control

Within the Preliminary Specification there is a conflict or contradiction that needs to be managed through the Compliance & Governance module. That is the posture that needs to be presented by the people who are members of the Joint Operating Committee towards the service industry representatives. At two different times and two different places during the ongoing operation of the properties the approach towards the service industry will be fundamentally different. At one time the approach will be to have the service industry operate as a free wheeling marketplace where the innovation and ideas are flowing at the fastest possible rate. And then there will be the times when the operations are being conducted and the need for military precision is expected and required to ensure the operations are completed successfully. This Dr. Jekyll and Mr. Hyde routine would give most people in both the Joint Operating Committee and the service industry a second look. 

We have discussed this contrast in the Preliminary Specification before. On the one hand we have a marketplace and on the other we have operational control. And for many reasons the two may be comprised of the same people operating in different capacities at different times. The governance issue is; how do we ensure that the operating mode, marketplace or operational control, is the appropriate mode that everyone is operating under? This is of particular concern to the service industry representatives, as so much of the operational control and success of the operation is dependent on their full attention.

The answer to this question comes from the “Operational Review & Governance Interface.” If there is an operation that is currently being conducted by the Joint Operating Committee. And there has been no corners cut or short cuts taken then there will be the explicit knowledge contained in the “Dynamic Capabilities Interface,” the “Planning & Deployment Interface,” assignments under the Military Command & Control Metaphor which will include representatives of the service industry, the AFE, and Job Order. Whereas none of these are required in the marketplace. Therefore the onus is on the Joint Operating Committee to ensure that these tools are used to ensure that the contrast from a freewheeling marketplace is imposed. And it will be in the “Operational Review & Governance Interface” that the governance over the members of the Joint Operating Committee is imposed to ensure they are using these tools appropriately during their operations.

Operational control and innovation are on two opposite ends of the same spectrum. That however does not mean that they can’t be attained by the same organization. The innovative oil and gas producer must have both. One without the other is not worth pursuing. The conflict and contradiction will show up in the organization at some point and the need to deal with it becomes a governance issue. The user of the “Operational Review & Governance Interface” will have the tools necessary to ensure that the Joint Operating Committee is able to discern the difference between innovative markets and tight operational control.

Governance Over the Second Process of Innovation

We have been concerned with the governance over operations, and now we want to look into the governance over the two major processes of innovation in the Preliminary Specification. The first process of innovation is the development of the innovation within the producer firm and is a result of the earth science and engineering capabilities being developed. The second process is as a result of the field level innovations that are developed by the service industry and are either product or service related in terms of their offering to the producer or Joint Operating Committee during some operation. Either way it is important that the producer firm have a measure of governance over the developments of innovation for a variety of reasons. These governance elements will again be captured in the “Operational Review & Governance Interface” of the Compliance & Governance module. Quotes are from Professor Richard Langlois paper “Innovation Process and Industrial Districts.”

What is it that the innovative oil and gas producer and Joint Operating Committee will be doing when they are “innovating”? That seems to be a fairly reasonable question and one that would be the founding principle in which the governance over the innovating processes should be based on. It's here that Professor Langlois provides us with a very good summary for our purposes.

Innovation is based on the generation, diffusion, and use of new knowledge. p. 1

The source of this new knowledge, and all of the knowledge is the “Dynamic Capabilities Interface” in the Research & Capabilities and Knowledge & Learning modules. Recall that “knowledge begets capabilities, and capabilities begets action.” The capabilities that are contained within the “Dynamic Capabilities Interface” are comprehensive and are designed to serve the needs of all of the people that are required for that particular operation.

While it is possible to conceive of a firm that is so hermetic in its use of knowledge that all stages of innovation, including the combination of old and new knowledge, rely exclusively on internal sources, in practice most innovations involving products or processes of even modest complexity entail combining knowledge that derives, directly or indirectly, from several sources. Knowledge generation, therefore, must be accompanied by effective mechanisms for knowledge diffusion and for "indigenizing" knowledge originally developed in other contexts and for other purposes so that it meets a new need. p. 1

and

Relationships within industrial districts therefore lead to diffusion but also to the creation of new knowledge through shared preoccupations. Because many people or firms can work on a problem simultaneously, a number of different solutions may be found (Bellandi, 2003b). The results is a larger and stronger "gene pool" within the sector (Loasby, 1990, 117), with the further advantage that solutions that are originally regarded as competing may turn out to be complementary and well-suited to different niches within the district.  p. 7

I could go on for ever reciting the elements of the Preliminary Specification as the reasons for the governance requirements in the “Operational Review & Governance Interface.” The point that needs to be made is that the two major processes of innovation need to be reviewed from a high level within the firm. There are so many interactions between the firm and the Joint Operating Committee and the larger service industry that the possibility that all of the valuable knowledge is not all codified is high. That is just one of the risks. Another is that the “Lessons Learned Interface” doesn’t capture the failures accurately for further learning. These are all necessary to have someone review to ensure that the knowledge and capabilities, as well as the innovations are built upon for the future.

People, Ideas & Objects and Oracle Corporation

Where to begin, lets start off with a high level summary of the Oracle Governance, Risk & Compliance Management Suite of modules. There are three groupings in which the modules are organized, they are Risk & Financial Governance, Performance & Financial Controls and Access & Segregation of Duties Controls. Within these three groups you will find the modules that Oracle has developed in the Oracle Fusion Applications, Oracle Governance, Risk & Compliance Management Suite. We will be discussing the Risk & Financial Governance module with the Performance & Financial Controls being discussed next and Access & Segregation after that. Needless to say these modules have all been adopted within the Preliminary Specification.

To the larger issue of compliance and governance and how a firm gets a firm handle on the growing demand for more regulation. Oracle and People, Ideas & Objects have similar ideas as to how to keep ahead in this difficult area. Oracle asks the following.

No one expects that this is the end of new industry and legislative requirements, so business executives continue to struggle with questions such as: How can we stay on top of regulatory demands while controlling costs? Can we better manage risk to prevent business and compliance failures? How do we achieve better performance while ensuring accountability and integrity?

And it is through automation, Information Technologies and the use of standardization and the division of labor that the innovative oil and gas producer can achieve these objectives of getting ahead of the regulations. As we have proposed in the Preliminary Specification, the producer that participates in the user community has the opportunity to shape the software that they will use. People, Ideas & Objects is user defined software based on the Joint Operating Committee. Giving the producer the ability to remake their organization into an innovative, profitable and performance oriented oil and gas producer.

In terms of Oracle’s Risk & Financial Governance module producers will be able to increase the efficiency of compliance processes, improve the reliability of the financial reporting and anticipate and respond to risk. We discussed the element of risk in the Financial Marketplace module and the assessment of all of the investments based on their anticipated returns. Each of the potential investments have to be “risked” in order to bring the return on to comparable terms that considers the risk. It is here that the the two modules, the Oracle Risk & Financial Governance, and the Financial Marketplace modules will have some cross over. It is also at this point that our two firms have similar attitudes, again, with respect to how the producer attains value. Oracle states.

KPMG's Assurance & Advisory Service Center understood early that value and risk go hand in hand and that performance and risk management should converge to create, enhance and protect stakeholder value. In May 2007, the Institute of Management Accounting further characterized Enterprise Risk Management as aligning strategy, processes, technology, and knowledge with the purpose of evaluating and managing the uncertainties the enterprise faces as it creates value. It considers ERM to be a truly holistic, integrated, forward-looking, and process oriented approach to managing all key business risks and opportunities—not just financial ones—with the intent of maximizing stakeholder value as a whole.  

This will be a key insight that the user community will be able to build off of the People, Ideas & Objects Financial Marketplace and Oracle’s Risk & Financial Governance modules.

The Oracle Transaction Controls Governor is an application that is designed to continuously monitor key transactions. It also provides monitoring of data and application modifications. In terms of reviewing transactions, much of the application is programmable and can be set to look for certain criteria. This is done through an interface that is intuitive and easy to set up a control that will monitor all transactions for certain behavior. Oracle also provides a library of internal controls that can be deployed if the producer finds them of value. People, Ideas & Objects, working on behalf of our subscribing producers, should also provide a library of these controls that are specific to the innovative oil and gas producer. These controls output can then be directed to the appropriate individual within the firm to have them dealt with.

Oracle’s Configuration Controls Governor is an Oracle Fusion Application that provides Sarbane’s Oxley compliance to the producer for IT infrastructure configuration changes. When there is a change to your IT environment, the who, what, where and when of the change is sent to the appropriate people within your organization. There they can review the changes to ensure that they were carried out in compliance with the companies policies. The Configuration Control Governor also provides the ability to establish tolerances on fields. So if a user entered a number that exceeded the value of the fields tolerance, the transaction would be rejected.

During our discussion of the Compliance & Governance module we discussed the need for more internal controls. And these transaction and configuration controls will bring an element of the internal controls under appropriate governance. That these are automated helps to provide a strong understanding of the appropriateness of the global transaction base the producer firm has based their financial reports upon. However, they are not the whole picture when it comes to internal controls. And that is where the Oracle Preventive Controls Governor comes into play. Using configurable workflows, Oracle Preventive Controls Governor enables the user to design  and implement appropriate internal controls for their firm. This tool provides both contextual and intrinsic policy applications to business processes.

We take a look at Oracle Fusion Applications, Governance, Risk & Compliance Suite, Access Controls Governor module. This will be an important element of the Preliminary Specification as segregation of duties (SOD) has taken on an heightened importance in the firm. Whether that is as a result of the regulation or from the need for better governance, SOD offers many advantages to the innovative oil and gas producer. Having multiple people involved in the process from beginning to end ensures that no one individual can manipulate resources of the firm for their own benefit.

Oracle notes the following is also part of the Access Controls Governor modules functionality.

Global regulations are driving organizations to improve the transparency and accountability of financial data, processes, and transactions. Controlling, tracking, and reporting on user activity within the application environment are critical components of compliance.

So apparently big brother needs to be watching. And as good as your internal controls may be, there will always be ways in which the system might be “hacked” in ways that were unknown before. Thankfully Oracle’s Access Controls Governor module is automated and implements the policies based on management's understanding. There is also a library of controls that can be implemented that was developed by Oracle in collaboration with leading audit and consulting firms. As with the libraries that were mentioned, People, Ideas & Objects will maintain a library of these policies for the innovative oil and gas producer. And the system is not just reporting on violations, it is actively stopping and enforcing SOD when they occur based on those policies. And they can be somewhat dynamic and proactive in their enforcement, stating that no user can be involved in more than two steps of a five step process, and disallowing the user to sign on to another process at the time of assignment.

When preparing policies for implementation the Oracle Access Controls Governor provides a tool for simulating the new policies. Using the historical record of user access as the base of information it can run the new policy against that data to determine what the outcome of that new policy will be. Would there be any new violations, and / or false positives etc? Then they can tune the policy based on the feedback that they get from the tool to ensure that it is catching only the desired situations. Saving costly resources in the future.

From a People, Ideas & Objects perspective the Oracle “Governance” applications that we have discussed help to bring 21st Century internal controls to the Preliminary Specification. When we think of the manner in which the industry will operate with large portions of the existing producers overhead being provided by service providers. And those service providers accessing their work through the People, Ideas & Objects Preliminary Specification. Extension of these internal controls to those individuals will be needed as well. The producer will need to know that these controls are effective in their firm, their Joint Operating Committees and the service providers they hire to maintain their firm.

Conclusion

Here we have the beginnings of compliance and governance for the innovative oil and gas producer and Joint Operating Committee. What we need to do is to deal with the compliance of an innovative oil and gas producer with the tools of the 21st century. Those include automation, specialization and the division of labor. And in terms of governance, we can begin to provide the producer firm with the appropriate operational governance that is consistent with the demands of innovation.